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CIRCULAR No

CIRCULAR No.51/2000/TT-BTC OF JUNE 2, 2000 GUIDING FINANCIAL MATTERS IN BUSINESS CONTRACTING AND LEASING OF STATE ENTERPRISES UNDER THE GOVERNMENT�S DECREE No. 103/1999/ND-CP OF SEPTEMBER 10, 1999

I. GENERAL PROVISIONS

1. Application scope and conditions:

1.1. This Circular prescribes the financial matters related to business contracting and leasing the entire State enterprises, applicable to independent State enterprises and member enterprises of corporations, specifically including the following enterprises which:

a) Have the State capital of under 1 billion VND, recorded on accounting books, have suffered prolonged business losses, or where the State no longer needs to hold its equities, excluding enterprises which are State-run agricultural farms, forestry camps and State enterprises operating in the fields of consultancy, designing and expertise.

b) Have the State capital of between 1 billion and under 5 billion VND, recorded on accounting books, have suffered prolonged losses but not yet fallen into the state of bankruptcy, have been unable to overcome the situation even after the application of necessary measures. The Prime Minister shall, on case by case basis, decide or assign the branch-managing ministries, the People�s Committees of the provinces and centrally-run cities and the Managing Boards of Corporations 91 to decide the contracting or leasing of enterprises.

1.2. The business contracting within State enterprises, the partial leasing of State enterprises and the leasing of single asset of State enterprises shall not be governed by this Circular.

2. Principles for financial handling when the business contracting or leasing of enterprises is effected:

2.1. Before business contracting or leasing enterprises, the enterprise management renewal boards shall have to inventory the assets, determining the quantity and current status of fixed assets, long-term investment, liquid assets and short-term investment, amounts of debts to be recovered and to be repaid, sources of capital and funds; and handle existing property and financial problems, according to the principles:

- Fixed assets, liquid assets, debt amounts to be recovered and to be repaid, if they are not included in the list of assets to be leased or business contracted and cannot be inherited, the enterprise lessors or contracting parties shall have to handle them by means of: transfer, liquidation, sale, report to competent agencies for deciding the handling according to the current financial regimes.

- Assets which are hired, borrowed, kept for others, processed on others� orders or entrusted shall be inventoried, classified and handled upon agreement with the concerned parties through: inheritance or transfer with liquidation of rent, borrowing� contracts before the business contracting or leasing of enterprises.

- Debts to be recovered, to be repaid: enterprises make comparison and acknowledgment, separating bad debts and outstanding debts which cannot be repaid.

The contracted or leased enterprises shall, together with the contractee or lessee, reach agreement with the concerned parties on the inheritance of debts.

- The credit balance of monetary capital by the time of hand-over of contracted or leased enterprises: cash in safe, bank deposits, checks, bonds� shall be agreed upon in the enterprise leasing contracts: the lessors withdraw them or the enterprise lessees continue to use them and make repayment in the enterprise leasing price.

- Assets formulated from reward and welfare funds are transferred to the labor collectives, which shall be managed jointly by the Trade Union Executive Committees and the enterprise lessees or contractors or by the mode agreed upon by the Trade Union Executive Committees and the transferors as well as transferees. For the reward or welfare fund balance (if any), the enterprise lessors and the enterprise trade unions shall work out plans for the handling thereof before signing the contract on enterprise hand-over, ensuring the legitimate and equitable interests of laborers.

Where there still exist debts or supplies left unhandled and uninherited by the contractors or lessees that have so disagreed, such debts and supplies shall be frozen and assigned to the contractors or lessees for further handling or custody. All expenses related to the preservation, custody, or consumption, recovery of debts� shall be covered by the contracting parties or lessors and specified in the contracts for enterprise contracting or leasing.

The time limit for handling such assets shall be 90 days at most; past this time limit, such assets, if still left unhandled, shall be assigned to the contractors or lessees for custody, preservation and further handling.

2.2. All assets of the enterprises subject to business contracting or leasing shall be valued at the actual market prices. The actual market prices may be higher or lower than the enterprises� value determined on the accounting books by the contracting parties or lessors as basis for reaching agreement (or bidding) with the enterprise contractors or lessees. Where the actual value of an enterprise is lower than the value on the accounting books, there must be written consent of the enterprise�s finance managing agency of the same level (the Finance Ministry for central enterprises, the provincial/municipal Finance- Pricing Services for local enterprises).

- After the agreement or bidding results on the business contracting level or the enterprise leasing prices are available, the ministers, the presidents of the People�s Committees of the provinces and centrally- run cities, the Managing Boards of Corporations 91 shall decide the business contracting level or the leasing prices for enterprises holding the State capital of under 1 billion VND on the according books.

For enterprises with the State capital on the accounting books being between 1 and under 5 billion VND, the ministers, the presidents of the People�s Committees of the provinces and centrally-run cities, the Managing Boards of Corporations 91 shall report such to the Prime Minister for consideration and decision or shall decide by themselves according to the responsibility assignment by the Prime Minister.

2.3. Expenses for business contracting or leasing of enterprises

The expenses for organizing the business contracting or leasing of enterprises shall include the expenses for asset inventory, information and advertisements, bidding organization� which must all be accounted into the expenses for the enterprises� regular operations before the business contracting or leasing.

2.4. The business contracting and leasing of enterprises aim to continue production and business activities, preserve the capital and well employ laborers in the enterprises. The enterprise contractors or lessees may manage the enterprises according to the contractual provisions for the purpose of profit-generating business and are not allowed to own the contracted or leased assets. The sale of assets for equipment renewal and replacement or the liquidation of unnecessary assets, fully depreciated assets during the period of enterprise contracting or leasing must comply with the specific terms inscribed in the concluded contracts.

Where the enterprises contractor or lessees liquidate, sell them to replace the fixed assets, the transferors and the transferees shall have to settle all relevant financial matters on the basis of the current financial regimes on liquidation and sale of fixed assets.

2.5. The enterprise contractors or lessees may make additional investment in the perfection of technological renewal from the sources of their own capital or mobilized capital (bank loans and other sources).

These assets shall be under the ownership of the contractors or lessees and may be withdrawn upon the contract liquidation. When making additional investment, the contractors or lessees must notify the contracting parties or the lessors thereof.

2.6. The enterprise contracting or leasing terms shall be agreed upon by the two parties but shall not be under 5 years.

The two parties must strictly abide by the time limits inscribed in the contracts and neither party is allowed to unilaterally terminate the contract before schedule, except where it is so agreed upon by the two parties.

The enterprise contracting parties or lessors may propose the persons who decide the enterprise contracting or leasing to terminate the contract ahead of time (if the contractors or lessees breach the contracts).

Where the enterprise-leasing term expires and the lessee purchases the enterprise, the two parties shall liquidate their contract and comply with the regulations on sale of enterprises.

II. BUSINESS CONTRACTING

1. Business contracting contents, norms and conditions:

Basing themselves on the characteristics of each branch and business results of enterprises, the agencies which issue decisions on business contracting (the branch-managing ministries, the People�s Committees of the provinces and centrally-run cities or the State Corporations 91 for attached member enterprises) shall define the contracting contents, norms and conditions according to the following requirements:

1.1. The contracting parties shall have to preserve the capital allocated by the State. The contractors shall have to preserve the capital received under the contracts. The contractors have full power to manage and use the assets, supplies, capital, funds and labor of the enterprises they have received at the time of hand-over for business purposes and must not consume the capital of the contracting parties.

1.2. The contracting parties should specify the conditions for the implementation of the State policies and regimes in production and business activities as well as the inheritance of contracts signed previously by the contracting parties, including the contracts on supplies, raw materials and materials purchase and sale or on product consumption, debts to be recovered or to be paid, which must be agreed upon by the contractors for inclusion in the to be signed hand-over contracts. The contractors commit to organize the production and business activities and manage the enterprises according to the provisions in the hand-over contracts and not in contravention of the current law provisions.

1.3. The contracting parties and the contractor shall agree upon the annual contracting profit (loss) amount. The profit contracting level may be set for the whole contracting term or each year. The profit contracting level must not be lower than the average profit level earned by the enterprise in three latest years before the business contracting. Those enterprises that have suffered chronic losses before the business contracting, the loss reduction level, the conditions and time for loss termination shall be contracted, provided that the loss reduction amount of the current year must be larger than that of the previous year. The loss reduction period shall be followed by the annual profit contracting period as prescribed above.

The above-mentioned contents on business contracting, contracting conditions as well as the rights and obligations of the parties shall all be inscribed in the contracts and must be agreed upon between two business contracting parties.

2. Business contracts:

The contract for business contracting must clearly indicate the rights and responsibilities of the contractor and the contracting party as well as the agency deciding the business contracting. Concretely as follows:

2.1. The rights and responsibilities of the contractor:

a) The contractor shall have to accept a profit (or loss) contracting level to be achieved annually as provided for in Clause 1, Part II of this Circular. This profit contracting amount shall be distributed for the following:

+ Payment of enterprise income tax as prescribed by law;

+ Payment for the use of State budget capital by the contractor under the authorization of the contracting party according to the business contracting contract. Where the loss contracting is effected, the payment for the use of State budget capital shall not be calculated;

+ The remainder shall be deducted for: the financial reserve fund, development investment fund, severance fund, reward fund and welfare fund according to the current regulations applicable to the State enterprises.

b) The profit amount in excess of the annual contracting level shall be distributed as follows: To pay the enterprise income tax as prescribed by law and the remainder shall be used under the contractor�s decision for addition to the reserve fund to offset the contracting profit deficit and to preserve capital. The remainder shall be supplemented to the revenue or used as reward or welfare for the laborers.

Where the profit contracting level is not achieved, the contractor must first of all apply measures to reduce the production costs, offset the deficits from the financial reserve fund of the enterprise or reduce its wage fund in the period in order to ensure the full payment of the income tax according to the contracting profit level. Where the enterprise reduces losses against the contracting amount, the loss reduction amount shall be considered the excess profit as mentioned above and be acknowledged until the enterprise earns profit which shall be determined as profit in excess of the corresponding contracting profit and used as prescribed above. On the contrary, if the enterprise suffers a loss larger than the contracting loss amount, the excess loss amount shall be considered the decrease in contracting profit and handled like the case of failure to achieve the contracting profit level.

c) The contractor shall deduct and account the fixed asset depreciation and wage expenditure into the production cost according to the current regime applicable to the State enterprises. The enterprise contractor may retain this depreciation money for use according to the current regulations.

The enterprise contractor shall have to make regular repairs and overhauls of fixed assets, for which the expenses shall be accounted into the production costs according to the current regulations.

d) The enterprise contractor shall decide on its own the organization of business activities, mode of wage payment; decide the bonus payment to officials and employees in the enterprise, including cost bonuses for raw material savings, innovations and labor productivity increase, provided that such bonus amount shall not exceed the economic profits.

The enterprise contractor shall decide on its own the use of capital and assets transferred by the contracting parties for production and business purposes with highest efficiency under the contractual terms and not in contravention of law. Where the assets must be liquidated due to damage, natural calamities or business risks, the contractor shall conduct the liquidation according to provisions in the business contract.

The enterprise contractor shall perform the contractual obligations regarding the inheritance of debts to be recovered and to be paid. The enterprise contracting parties and contractor shall have to clearly define the liability for each debt amount.

2.2. Rights and responsibilities of the contracting party

The contracting party represents the State ownership over the amount of contracted assets, supplies and capital and shall have to supervise and monitor the implementation of commitments in the business contract and, together with the contractor, handle relevant arising matters or breaches of contractual commitments. It shall have to preserve the contracted capital and not intervene in the business management by the contractor, including the use and mobilization of assets within the contracted enterprise.

2.3. Handling of violations, rewards and penalties in the course of business contracting.

The contracting party and the contractor shall have to strictly abide by the contractual terms including those on rewards and penalties in the course of business contracting. Where the contractor breaches the contract, the fine shall be paid by the contractor. Where the contracting party breaches the contract, it shall have make compensations according to the contract.

Where emerge disputes over the violation of contract, the agencies which have decided the business contracting of enterprises: the branch-managing ministries, the People�s Committees of the provinces or centrally-run cities or State corporations (for enterprises under corporations) shall assume the prime responsibility in handling them with the participation of the enterprises� finance-managing bodies of equivalent level.

3. Final settlement of contracting norms and liquidation of business contracts.

Liquidation of business contracts: Upon the expiry or termination of the business contract, the contractor and the contracting party shall have to liquidate the contract. The contractor shall have to return the enterprise to the contracting party according to terms inscribed in the contract.

Before liquidation of the contract, the enterprise contractor shall have to assume the prime responsibility to conduct the asset inventory, participated and supervised by the contracting party, in order to determine the quantity and value of assets and the payable amounts between the contracting party and the contractor.

The principle for contract liquidation shall comply with the provisions in Clause 4, Part III of this Circular.

III. LEASING STATE ENTERPRISES

1. Forms of enterprise lease

The lessee may select one of the following forms:

1.1. Leasing assets: The lessee shall rent the entire fixed assets which constitute the production and business foundation of the enterprise together with its labor, but shall not inherit the to be-recovered debts, capital in cash, the payable debts, funds and other capital sources of the leased enterprise.

For the liquid assets left in stock by the time of leasing, the lessor shall sell them to the lessee by mode of deferred payment or lump sum payment at the actual price. The deferred payment with or without interests shall be agreed upon by the two parties and the interests shall be accounted into the leasing price of the enterprise�s assets.

1.2. Leasing operation: the lessee shall lease the entire assets which constitute the production and business foundation of the enterprise together with its labor and at the same time inherit the debts to be recovered, capital in cash, payable debts and other capital sources of the leased enterprise.

1.3. For both enterprise-leasing forms mentioned above, the lessee may inherit economic contracts as well other rights and obligations of the leased enterprises as agreed upon by the parties concerned.

For fixed and liquid assets the lessor and the lessee cannot reach agreement on their inclusion into the list of leased or purchased assets (for the liquid assets), the lessor shall have to preserve and handle them according to current regimes.

2. Determining the enterprise-leasing price

Basing themselves on the enterprise leasing forms and minimum prices set by the persons who decide the enterprise leasing, the enterprise lessors and lessees shall directly agree on the enterprise leasing prices (for case of direct lease) or the enterprise leasing prices being the bid winning prices (for cases of bidding), which, however, must not be lower than the minimum leasing prices set by the persons who decide the leasing.

The minimum prices shall be determined on the following principles:

2.1. For cases of assets leasing:

a) Ensuring the coverage of expenses for the corrosion of leased fixed assets. These expenses shall be determined on the basis of the current regulations on fixed asset depreciation applicable to the State enterprises.

b) Ensuring the collection of budget capital-using charges or payment of interests on bank loans and other mobilized loans (if any).

c) Covering the lessor�s reasonable expenses in the process of managing and supervising the leased assets: wages and expenses (of the lessors) for managing and supervising the leased enterprises.

d) Accounting interests into the enterprise-leasing prices: The interest level depends on many factors: the asset value and status, technology, the enterprise�s prestige and product quality, competitiveness, consumability, financial capability and business efficiency of the enterprise before the lease.

- For enterprises with profitable business: The minimum interest rate included in the leasing price is determined on the basis of commensurability with the minimum profit level achieved before leasing the enterprise.

- For enterprises suffering losses or earning no profits, no profit is calculated into the minimum leasing price.

2.2. For cases of leasing operations:

The minimum leasing price shall include the expenses stated at Point b, c and d of Clause 3.1 above.

3. Using the money earned from State enterprise leasing

3.1. For cases of assets leasing:

The proceeds from the State enterprise leasing shall include:

- The money from enterprise leasing, separating the fixed asset depreciation money;

- The money from the sale of liquid assets;

- The money from the sale, liquidation of assets of the enterprise (not on the list of assets to be leased);

- The money from recoverable debts.

The above-said collections shall be used as follows:

- To cover expenses relating to the leasing of enterprise, payment of payable debts.

- Particularly, the money collected from fixed asset depreciation shall be used for reinvestment in the leased fixed assets or debt repayment. The remainder shall be channeled into the State Enterprise Restructure and Equitization Support Fund of Corporation 91 (if the enterprise is under Corporation 91). For enterprises under Corporations 90, that have no such funds, the remainder of the fixed asset depreciation shall be incorporated into the Corporations� business capital for reinvestment in the enterprises after the lease. Pending the reinvestment in the leased enterprises, it can be used for business or mobilized for other enterprises within the corporation. For independent enterprises under the branch-managing ministries, the People�s Committees of provinces and centrally-run cities, it shall be remitted into the State Enterprise Restructure and Equitization Funds of the central government (for the State enterprises under the central government) and localities (for locally-run enterprises).

- The difference between the enterprise leasing money and the fixed asset depreciation money and enterprise leasing expenses shall be accounted into the profit or loss of the leased enterprise.

- The price differences arising in the sale of liquid assets, the sale or liquidation of unnecessary assets shall be accounted into the financial operation profits (or loss) of the enterprise. The cost prices of these assets shall be used for debt repayment and the remainder shall be remitted into the State Enterprise Restructure and Equitization Funds or incorporated into business capital (for Corporations 90) as prescribed above for reinvestment in the enterprise upon the expiry of the enterprise leasing contract.

- Debts to be recovered, to be paid: The leased enterprise shall have to continue to monitor and recover and repay debts in full. The recovered debts shall be used for debt repayment, the remainder, if any, shall be transferred into funds and business capital as mentioned above. The outstanding bad debts which cannot be recovered due to objective causes shall be accounted into the enterprise�s loss.

3.2. For cases of operation leasing:

The proceeds from the State enterprise leasing shall include:

- The enterprise leasing money;

- The proceeds from the sale and liquidation of the enterprise�s assets not on the list of leased assets shall not be incorporated into the leasing value (if any).

- The recovered debts (if any) shall not be calculated into the value of the leased enterprise.

These shall be used to cover the expenses relating to the leasing of enterprise and the repayment of debts (if any) owed by the leased enterprise.

3.3. The leased enterprises shall account the revenues and expenses relating to the enterprise leasing activities into the financial operation revenues and expenses of the enterprises, distribute profits and fulfill the State budget remittance obligations according to the current regulations applicable to the State enterprises.

4. Liquidation of enterprise leasing contracts

Upon the expiry of the enterprise leasing term, the enterprise lessor and lessee shall have to carry out the procedures for contract liquidation according to terms inscribed in the contract.

Before the contract liquidation, the enterprise lessee shall have to assume the prime responsibility in conducting the inventory, which is joined and supervised by the parties, in order to determine the quantity and value of the assets and the payment amounts between the lessor and the lessee.

The handling principles for contract liquidation:

- Based on the terms inscribed in the contract;

- Based on the documents and vouchers agreed upon between the enterprise lessor and lessee regarding the asset handling in the course of operation such as sale, liquidation, additional investment, etc.

- Based on the results of the inventory before the hand-over of the enterprise.

The quantity and value differences determined in the inventory should be handled on the basis of the contract and in accordance with the current financial regimes.

- In cases of asset damage, ruin or loss due to objective causes such as natural calamities or enemy sabotage in the course of the lessee enterprise�s operation, consideration shall be made for non-compensation but for deduction into the value of the returned enterprise.

- Any disputes falling beyond the two parties� handling competence shall be reported to the persons who have issued the decisions to lease the enterprise and the agency in charge of the enterprise�s finance of the same level for their settlement opinions.

IV. IMPLEMENTATION PROVISIONS

1. This Circular takes effect 15 days after its signing.

2. The agencies managing enterprises� finance at all levels shall have to guide, supervise and inspect the implementation of this Circular in the enterprises.

The Managing Boards, the general directors of corporations and directors of enterprises which have no Managing Boards shall have to implement this Circular.

3. Any problems arising in the course of implementation shall be reported promptly to the Ministry of Finance for study, appropriate supplements and perfection.

For Finance Minister

Vice Minister
PHAM VAN TRONG